College Plan

529 Plan

With cost on the rise, the idea of paying for college at the time your kids enroll is increasingly difficult, especially for families that have more than one child. Moreover, many parents hope to avoid the need for their kids to get expensive student loans. Grants and scholarships are a good, yet unpredictable, option.

For these reasons, the 529 Plan can be ideal for families that want to proactively plan for college savings with mostly tax free funds.

The concept behind the 529 Plan is simple - save earlier and attempt to beat the inflation rate of college with tax free earnings, thereby significantly reducing the out of pocket costs.

529 Plan

529 plans are college savings plan that can offer significant income tax benefits. While contributions are not deductible on your federal tax return, most Michigan residents qualify for a state tax deduction if using a state sponsored plan such as the MI 529 Advisor plan through Allianz/Pimcoor the direct plan sold through TIAA/CREF. The investment grows tax-deferred, and distributions to pay for the beneficiary's college costs are federally tax-free.

The donor (person funding or titled on the account) of the plan maintains control of the account. This allows the donor to make the decisions on investment selection, when and for what reasons withdrawals are made. Most plans even allow the donor to withdraw funds for personal use, no questions asked. (However, federal penalties may apply such as income tax treatment on earnings and an additional 10% penalty.)

Please fill out the request for paperwork section. We’ll call and help decipher if a 529 plan is right for you.

Michigan’s Three Sponsored 529 Plans

MET

Prepaid tuition based on current average tuition of Michigan public colleges

Maximum benefit paid is determined by where

beneficiary attends college

MESP

Accumulation based on low cost investment approach

Eligible expenses include most higher education expenses beyond just tuition

MI 529 Advisor Plan

Accumulation based on multiple actively managed portfolios

Eligible expenses include most higher education expenses beyond just tuition

Similarities of all three plans

Offer state tax deduction for Michigan residents

Earnings are tax exempt for qualified expenses

Allow refund options for scholarships or grants

Has out of state college attendance provisions

Allow for multiple plans per beneficiary.Encouraging contributions by family orother people/institutions

Differences in prepaid vs. accumulation 529 plans

Accumulation plans are most diverse in how benefits can be applied

Prepaid plan benefits based on tuition(estimated 33% to 50% of total actual college expenses)

Accumulation plans allow for the chance of market returns

Prepaid plan might offer greatest protection against loss

Accumulation plans risk that college inflation could exceed returns

Prepaid plan locks in tuition costs at Michigan public colleges

JumpStart is a national organization dedicated to bringing financial literacy to schools. They believe good financial education is paramount to us succeeding as a nation, and that every child deserves a chance. James Studinger is the Chair of the Michigan Coalition. Read more about JumpStart or check out their blog at www.mijumpstartcoalition.org→

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